The U.S. Secret Service has seized more than $4.24 million in currency that investigators believe was part of a money laundering scheme to acquire new bills in exchange for damaged dollars.
Federal investigators said in a search warrant affidavit in Washington that more than a dozen packages of money submitted in a two-year span since 2010 contained bills that were intentionally damaged through burning and chemical agents.
Most of the money came from a bank in Argentina that agents did not identify in court papers (PDF) unsealed last week in U.S. District Court for the District of Columbia. The damaged cash was transmitted to the U.S. Treasury Department's Bureau of Engraving and Printing (BEP), which runs a money replacement program.
A Secret Service agent said in an affidavit that the currency scheme was an attempt to use the printing bureau's redemption system as a "money laundering machine." Investigators said they found two fragments of a single bill in two separate packages, indicating the person wanted to receive, from the federal government, two new bills from one $100 bill. The fragments were identified through their corresponding serial number.
"[I]t is in the interest of criminals in foreign countries who generate large quantities of American cash in illegal transactions to get all or even some of it 'laundered' both so they can spend their ill-gotten gains and to conceal their unlawful transactions," the agent, Warren Buckley, said in court papers. "If mutilated currency can be redeemed through BEP, this is perhaps the ideal money-laundering scheme."
Some notes that appeared water-damaged, Buckley said, revealed the presence of a chemical "as if they had been put in laundry detergent, fabric softener or fabric cleaners." The addition of a chemical, he said, "gives the note the appearance of looking considerably more worn and older than it is."
The duplicate bill fragment evidence, combined with signs that the bills were intentionally damaged, gave reason to believe "that the mutilated currency's original holders are unlawfully altering currency and/or trying to launder monetary instruments through BEP," Buckley said in a search warrant affidavit. It's a federal crime to intentionally mutilate U.S. currency with an intent to defraud.
Buckley did not speculate on the origin of the money. He said, however, that "lawful retailers" in the United States and abroad do not typically engage in transactions that involve $100 bills only. In the United States, he said, a "$100 bill is still a comparatively rare thing to see, such that some retailers decline to make change for a $100 bill for fear it might be counterfeit."
U.S. Magistrate Judge Alan Kay in Washington on May 7 approved the search and seizure of the cash. The money is now subject to civil or criminal forfeiture. Court records, publicly filed on June 13, do not indicate that any person has made a claim on the cash. A spokesman for the Secret Service did not immediately comment on the investigation.
Mutilated currency is money that is less than 50 percent of the original note or in a condition that requires a special examination to determine the value. The more damaged the cash, the longer the inspection takes.
Currency examiners over their careers have seen notes "that were buried in the ground for decades or washed out in floods, bills that were burnt in fires and notes that have been eaten by animals," court records show.
Examiners are suspicious when two separately submitted bills "have remarkably similar or the same burn marks and charring pattern" on each bill. "When BEP experts find notes in different packages burnt in the same way in unusual places, they suspect intentional burning," Buckley said.
Last July, Secret Service agents and Treasury Department inspector general's office staff interviewed officials in Bank of America's foreign currency services unit in Miami. The bank was a "middle man," accepting cash from the bank in Argentina and then forwarding the money to the BEP for redemption.
Bank officials told the Secret Service that the bank does not inspect the bags of mutilated currency it receives, according to Buckley's affidavit. Bank of America's client, according to bank officials, do not immediately receive any payment from the bank.
The latest seizure of damaged money is not the first. Since 2007, there have been several cases in Washington federal district court in which the authorities seized mutilated currency on the belief that the currency was intentionally damaged.